Pfizer Experiments With New Deal Structures

[EDITOR'S NOTE: The following dispatch was adapted from a VentureWire story as part of an ongoing series called "Corporate Speak" that analyzes the strategies of publicly traded companies plugged into the start-up community. For a two-week trial to VentureWire, click here.]

Pfizer Inc., whose top-selling drug is coming off its patent, is striving to spur future growth by helping start-ups solve problems that are stalling the march of new medical technology.

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Pfizer is helping start-ups solve problems that are stalling the march of new medical technology.

New York-based Pfizer posted record sales of $67.8 billion last year, but some of its top products face rising generic competition. Its best-seller, Lipitor, lost market exclusivity in Brazil, Canada and Spain, last year, for example, and the U.S. patent on the cholesterol medicine expires in November.

Pfizer has sought to counter the trend by buying peers, such as Wyeth, which it acquired in October 2009. But for long-term growth, it’s working with start-ups to find new ways to advance innovative technologies. In a notable deal completed in December 2009, for instance, it helped recruit four drug-makers to join it in a consortium with a venture-backed biotechnology company, Ablexis LLC.

With venture funding scarce for medical start-ups, Pfizer is looking to book more deals like this one, which enabled a new antibody-technology start-up to take flight with a group of initial customers. “We would be open to a number of novel structures,” said Barbara J. Dalton, who heads the corporate venture arm, Pfizer Venture Investments.

Working with Ablexis CEO Larry Green, Pfizer devised a solution to the so-called biotechnology platform problem.

Antibodies—which home in on disease targets—are a hot class of drugs because of their ability to treat cancer, inflammation, and other diseases. Corporations want new means of making them, but some venture firms fear that a biotech that makes tools, instead of drugs, won’t attract any one Big Pharma and deliver the returns they need.

Green, a former executive of antibody company Abgenix Inc., got to know Pfizer’s Margi McLoughlin, senior director, worldwide business development, through a collaboration the companies had in the 1990s and 2000s. After joining antibody-technology concern Aliva Biopharmaceuticals Inc., in September 2008, he began talking with her about the platform problem.

They hit upon an idea: structure a platform operation as a limited liability company. This way, it could partner its technology out multiple times and pass the proceeds directly on to shareholders, who could profit from their investment without having to sell the business or take it public.

A company structured as a C corp. that did this would be taxed twice–once when the cash came in, and once when it was divvied out, but an LLC is hit just once. Green formed Ablexis LLC in December 2009 and converted Aliva into an Ablexis subsidiary.

Green and McLoughlin used their connections to find Ablexis’s first clients, corralling four, undisclosed drug-makers to join Pfizer in a group that would gain access to the new company’s antibody-producing mice. That catalyzed investor interest in Ablexis, which raised $12 million in Series A financing from Pfizer Venture Investments and Third Rock Ventures in December 2009.

Pfizer and the other members paid Ablexis a seven-figure fee to join the consortium, and each will also pay an eight-figure sum when San Francisco-based Ablexis delivers its mice to them. Ablexis, meanwhile, remains free to hatch more deals that can put money in its investors’ pockets.

Pfizer has joined other consortia as well. It’s one of six pharmas bankrolling Enlight Biosciences LLC, an incubator formed by PureTech Ventures, in 2008, to launch start-ups in fields such as imaging and drug delivery, for example.

Pfizer’s venture group—which operates within Pfizer’s worldwide business-development organization—will continue to consider agreements along the lines of the Ablexis consortium.

Comments (1 of 1)

Pfizer has recently "played" in the acquisition market, and is involved in deals using the Billion term often. There are several thousand women waiting for some resolution/settlement with Pfizer ....as recently promised by Pfizer. They made a half hearted settlement offer of 30,000......to those women who suffered breast cancer diagnosis and treatment regimens, an iinsult to them Pfizer's new exec....a Mr. Read I think, pledged to resolve all of the Breast
Cancer cases against them as a priority for him. They are holding out,, on a process begun 6 yrs ago in some cases!!! What compassion they show!!!

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